The governor’s revised “rainy day fund” in Proposition 2 may improve the state’s fiscal fitness regimen, but it has become simply too risky for our local schools. It now threatens their financial stability. Please vote no on 2.
On the surface, Proposition 2’s revisions serve to make some reasonable changes to the state’s base rainy day fund mechanics. Not so reasonably, an additional school rainy day fund was added. While ostensibly created to help schools, it is funded by pulling money out of California’s constitutional minimum school funding guarantee. While the state promises to slosh these funds back during downturns, the state has a horrible school payment history. Nevertheless, this combination was put on the ballot by the Legislature this spring, and then something weirder happened.
In June the governor used the budget negotiations to insert a destructive clause into the education code. Triggered if Proposition 2 passes, it restricts all school districts to less than three weeks of year-end operating cash the year after any dollar flows into that state school “rainy day” fund. Currently, districts across the state hold about $8 billion at the end of each year — roughly two months’ operating expenses — in line with standard government financial guidelines. So over $5 billion of local school savings statewide would have to be spent if anything ever sloshed into the school fund.
For most of our local districts, this would mean dumping April property and parcel taxes by the end of June. Normally this first tax installment funds operations from July through November, before the second annual property tax installment arrives in December. Menlo Park City Elementary, for example, gets about $13 million twice a year, and carries about $15 million forward on June 30. This gives it a 6 percent reserve ($2 million) plus property tax funding for July 1 through Dec. 20. Las Lomitas behaves similarly; Sequoia Union High School District sails a bit closer to the wind, but still manages to carry over a quarter of its April payment forward on top of its reserves buffer.
The clause was inserted without any Legislative Analyst’s Office review, committee discussion, or public comment. When asked why anything so antithetical to “fiscal prudence” was injected, legislators state that payments to the state’s school rainy day fund “will only happen once every 25 years or so.” The legislative analyst simply says it’s unlikely to happen before 2020. While not very reassuring, these responses make one ask, “Why the rush then to insert the carry-over cap?”
Possibly the governor believes that the school savings fund will be triggered much sooner. This is bad news. When the schools’ constitutionally guaranteed 40 percent share of the state budget actually out-paces inflation, we are not going to give it to schools, but “save” it for them instead. (Please consider how this thinking keeps us ranked in the bottom 10 — 50th currently — nationwide in per-pupil spending.)
Theoretically, we are doing this for the schools’ sake because state funding is so volatile and because 80 percent of our schools are heavily dependent upon state funding. But why are they so dependent on volatile state funding? Because California actively and passively has drained stable, reliable property tax revenue away from schools for its own obligations and political objectives.
For example, every school district in San Mateo County should receive all its base funding from local property tax. We pay it, the county collects it, but then the county has been instructed to divert $150 million of education-allocated taxes to satisfy two of the state’s obligations. The county gets this by redirecting all the property tax away from Redwood City Elementary, Ravenswood Elementary, and the other less-well-off districts. Leaving them 100 percent dependent on … yes, volatile state funding. The state was late paying them $29 million it owed them just this June 30, at the end of the fiscal year. Down from $52 million two years earlier. This is why earlier versions of state rainy day funds never dared touch school funding. Schools have already given at the collection box. But institutional memory has fallen victim to term limits.
Proposition 2 is a jerry-rigged solution and a non-starter. Yes, the state has been historically unwilling to contribute to its existing rainy day fund. But Gov. Brown fed the existing fund $1.6 billion this year, and paid down $1.6 billion of debt. He can continue, or cut this back to the $1 billion each that the new Proposition 2 regulations would allow. Meanwhile, the risk to our schools is just too great. Gov. Brown can bring back better mechanics on a 2016 ballot — without baggage that threatens our schools. Please vote no on 2 to keep local control in our local schools.
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